Hyderabad-based Poonam Maria Prem, 34, was doing well in her job as a visual effects designer for 10 years, but in her mind she saw herself designing cakes with ganache and fondant. Also, she wanted to spend more time with her daughter Zoey, now 6. In 2013, she started taking small orders for cakes from her friends and colleagues and worked on these after office. After 3-4 months of doing this, when she had gained some confidence, and clients, she decided to quit her job. And thus, Zoey’s Bakehouse, her home-based, cake only, bakery was born.

But the decision was not made overnight. Poonam and her husband had planned for this. “I had bought all my basic equipment, such as an oven and a mixer, among other things, which cost around 1 lakh, while I had a job. I had also developed a small clientele. I decided to create a niche for myself as concept-based elaborate cakes were still a novelty in our city three years back," she said.

With cake prices starting between 2,000 and 3,000, around 14,000 followers on the bakery’s Facebook page and clients from many cities, Poonam says her work not only gives her more time with family but now she is earning twice what she used to earn earlier, apart from having control over her time.

Many professionals in junior to middle management levels are starting a home-based business or working freelance. “The trend is still nascent. Freelancing and home-based businesses are largely taken up by people with specialised skills. Though not at the pace of work from home, it is growing," said Sonal Arora, assistant vice-president, TeamLease Services, a recruitment consultancy.

Before putting in papers, it is important to take care of some money matters.

Finances in order

Being passionate about the business you are starting is the first building block. But will you be able to maintain a certain lifestyle and take care of financial liabilities without the regular paycheck? For this, make an estimate of how long will it take to start earning as much as you did.

Make a plan: “A financial plan can help determine when the working person can take the break—how many months will see nil income, what trajectory will the new work take, and to what level. While making the plan, we can consider sensitivities to a pessimistic achievement or an optimistic one," said Lovaii Navlakhi, founder and chief executive officer, International Money Matters, an investment advisory.

Assuming the standard of living is not to be compromised, it takes 3-4 months for the person to start earning, and 6-9 months for the earnings to reach current levels, it may be prudent to park nine months’ expenses in a liquid mutual fund, so that setbacks do not upset you financially, added Navlakhi.

Delhi-based former entertainment journalist Nivi Shrivastava, 30, wanted to do something that made use of her two interests—writing and fashion. So, she started a blog. Shrivastava started with writing paid content for international brands, which asked her to attend and cover their store openings, fashion shows and other promotional events on her now one-year-old blog www.msjunebug.com. She also wrote freelance articles for magazines. After 3-4 months, she started getting more offers for coverage and interviews. Now the blog has 200-500 hits a day. For Shrivastava, too, this was a planned decision. “I had started planning finances two years before I quit my job in June 2015. I’m not from Delhi, so I had rent to pay, day-to-day expenses and a certain lifestyle to maintain. So, I was building a corpus to keep myself financially sound during the initial journey. I invested in life and health policies, and in fixed deposits, from where I get interest every three months. I also keep money in my savings account," said Shrivastava. “I don’t have any liabilities such as a loan or dependents, which helps in lowering expenses," she added.

She pays an annual charge of 10,000 for the website domain, and a nominal fee for other features such as Jetpack, which helps in connecting all her social media accounts to the website. Designing the website herself saved her that much.

Buy insurance: It is important to have health cover in place before leaving your job. If you have financial dependants, then adequate life insurance is also needed.

“Before leaving, ensure that you buy adequate life insurance (term insurance). You may not be in a position to buy insurance after leaving the job, because the insurer will ask for proof of income before issuing high-value policies. If it takes a while for you to generate profit, it may not be possible to apply for life insurance at that stage," said Melvin Joseph, a certified financial planner and founder, Finvin Financial Planners. “If you don’t have a health insurance other than the corporate cover, buy one and ensure health cover for each family member. Do this before leaving your job. Any hospitalisation can derail all financial projections in the absence of a health insurance," he added.

Consider high expenses and low income: Although it is a liberating feeling to start a venture from scratch, understand the risks involved. As you leave the security of regular paychecks, be prepared to fail and face financial constraints. A home-based business is not the same as work-from-home. “Be realistic in business planning. Assuming a steady flow of income from the first month is foolish. Go conservative in this area. For expenses, it has to be other way round. Project for expenses higher than usual. If you assume these two, you may come nearer to the reality," said Joseph.

Keep a check on loan payments: Be cautious of issues such as non-payment of dues because this will unnecessarily take away money. Be sure to pay credit card dues on time since the interest rate can be as high as 22-48% per annum. If you have other liabilities—home, auto or personal loan—include these instalments when building a base corpus. Missing equated monthly instalments (EMIs) would affect your credit score, which, in turn, affects your ability to take a business loan. “Defaulting on financial obligations by way of failing to pay EMIs affects your credit score irrespective of whether you are salaried or self-employed," said Mohan Jayaraman, managing director, Experian Credit Information Co. of India Pvt. Ltd.

Generate additional income: Look for smaller avenues that can be a subset of your main business. Shrivastava says she doesn’t want to clutter her website with many advertisements and pop-ups, so she has opted for digital marketing, where she promotes a brand’s product through her social media accounts, such as on Instagram, Facebook page and WhatsApp groups, where if the buyer goes to the link of the product and buys it, the buyer gets a discount and she gets a cut in the sale.

Keep tax filing in order: Taxes will continue, irrespective of the change in mode of earning. When working with an employer, your tax is usually calculated and paid, and all you have to do is give investment proofs. But working on your own means “you have to maintain records of all payments and bills. File the tax returns in time with the help of a chartered accountant," said Joseph. There will be a distinction between salary and business income, and you may need professional advice on tax deductions and filing.

Keep track of other goals: Working on your own should not mean that goals such as saving to buy a house, children’s education or retirement are neglected. You will have to take care to continue some contributions. For example, Employees’ Provident Fund (EPF) contributions stop when you quit. So, you will have to plan for your retirement. “It is better to open a Public Provident Fund (PPF) account and start contributing every year. PPF is flexible and you can pay anything between 500 and 1.5 lakh (tax deductible amount) in a year. Also, start systematic investment plans (SIPs) in equity mutual funds for long-term goals," Joseph added. For regular pension, one can also opt for the National Pension System.

Mint Money take

Starting a business of your own based out of home is a difficult process. It is only when you are financially secure to an extent can you move ahead.

“Beyond passion, what you need to be clear about is the time and resources that you are willing to devote. How you plan not just to start, but to continue in that new role—you could determine that you want to have a growth plan for this; or do enough to sustain yourself. Make a list of what you would like to achieve or measured against 90 days, one year or three years. Update that at least once a year," said Navlakhi.

At the same time, make a list of things that you can forgo if needed. Shrivastava, for instance, needs to invest in being suitably dressed. “If I want, say, an expensive bag, I don’t buy it right off. I plan and save for it and then buy."

A financial plan that frees you from some money worries means you have that much more time to focus on making the new ‘job’ a success.

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